What has happened?
The US Department of Treasury is intensifying its efforts against "evolving threats", including the potential for virtual currencies to be used for money laundering and to finance other criminal activities.
What does this mean?
Testifying before the US Senate Banking, Housing and Urban Affairs Committee, Under Secretary for Terrorism and Financial Intelligence Sigal Mandelker, said last week that criminals seek out vulnerabilities in the global financial system, including by using emerging technologies such as virtual currencies "to launder their ill-gotten gains and advance their malicious enterprises".
Since criminals cannot operate without funding, putting in place a strong AML/CFT regime is key in order to identify and disrupt illicit activities, she added.
"The effectiveness of this structure depends on compliance by the regulated entities, and so we aggressively pursue virtual currency exchangers and others who do not take these obligations seriously," she said.
Mandelker said that the Treasury Department's Financial Crimes Enforcement Network (FinCEN) had engaged with and examined several virtual currency providers and exchangers.
She then described some of the government’s enforcement actions against exchanges, such as the closure and fine of BTC-e, a foreign-located virtual currency exchanger, which at the time was one of the largest virtual currency exchanges by volume in the world.
As a part of its action, FinCEN also fined one of BTC-e’s operators, Aleksander Vinnik, a Russian national.
“[t]his action sends a very powerful message that we will hold accountable virtual currency exchangers that violate our AML laws, wherever they are located. We will do so in conjunction with our law enforcement partners and foreign counterparts”.
Mandelker also noted that the EU is finalising stricter anti-money laundering rules, which will require EU states to regulate virtual currency exchanges.
"Even with these advancements, there is still a major gap in regulating these entities globally and we are actively engaged with other countries, bilaterally and multilaterally, to encourage them to apply international AML/CFT standards to virtual currency payments," she said.
These statements from the Treasury Department complement other similar warnings from other components of the US government.
Earlier last week, the enforcement directors from both the US Securities and Exchange Commission and the Commodity Futures Trading Commission issued a joint statement noting that “[w]hen market participants engage in fraud under the guise of offering digital instruments – whether characterized as virtual currencies, coins, tokens, or the like – the SEC and the CFTC will look beyond form, examine the substance of the activity and prosecute violations of the federal securities and commodities laws”.
“This scrutiny should come as no surprise to anyone,” noted Gregory Lisa, a partner in the Washington D.C. and New York offices of Hogan Lovells US, who formerly led FinCEN’s Office of Compliance and Enforcement.
“Given the government’s continued focus on anti-money laundering generally, and the proliferation of virtual currencies and new actors in this space, I expect that the regulatory scrutiny – and enforcement activity, civil and criminal – are here for the foreseeable future.”
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